Wednesday, October 18, 2017

California Governor Vetoed Small Cell Legislation

On October 16, 2017, California Governor Jerry Brown vetoed a bill that would have expedited the deployment of small cell infrastructure throughout the state. Hopefully, if he gets another opportunity, Governor Brown will reconsider his position and sign a new version of this bill which would facilitate deployment of 5G wireless technology.
Senate Bill 649 would have streamlined the process for obtaining permits to install small cell infrastructure, limited the fees that local governments could charge wireless providers, and constrained the ability of local governments to reject wireless deployment plans. Small cell deployment is necessary for the implementation of 5G wireless networks, the next generation of wireless networks with speeds 10 times faster than 4G.  If the bill had not been vetoed, this legislation would have encouraged many billions of dollars in investment and economic activity throughout the state of California in addition to enhancing public safety and everyday “livability” for the state’s residents.
An Accenture Strategy report estimates that 5G technology will create $275 billion in investment, 3 million jobs, and $500 billion in gross domestic product throughout the United States. With California’s economy comprising roughly one-eighth of the U.S. economy, Governor Brown’s veto could be very costly to California’s economy.

Governor Brown’s rationale for vetoing the bill is that he does not want to limit the authority of local governments. According to the October 16 edition of TRDaily, Governor Brown said: “There is something of real value in having process that results in extending this innovative technology rapidly and efficiently. Nevertheless, I believe that the interest which localities have in managing rights of way requires a more balanced solution than the one achieved in this bill.”
Although this bill would have created statewide laws for small cell deployment, it would have maintained the “local government’s historic role and authority with respect to communications infrastructure and construction generally.” The bill would have preserved existing agreements between wireless providers and local governments. It would have allowed local governments to charge permit fees, annual attachment fees, and other fees depending on the location and building type. It would have maintained local governments’ authority to require permits for deployment outside of public rights-of-way. And, lastly, the bill would have allowed local governments to be reimbursed for the costs associated with attaching small cells to utility poles, streetlights, and other suitable infrastructure owned by the city or county.
As I explained in a January 2017 blog, 5G wireless technology will benefit local governments by enabling smart street lighting, optimizing public transportation routes, minimizing congestion with vehicle-to-vehicle communications, and decreasing the response times of police and first responders. All of these benefits not only make localities safer and more livable, they also create cost-savings for local governments. Here is what I said in my blog:
[A] report published earlier this month by Deloitte, entitled “Wireless Connectivity Fuels Industry Growth and Innovation in Energy, Health, Public Safety, and Transportation,” contains similar findings on the economic and social benefits of 5G wireless technology. This report says that smart cities collectively could create $1.8 trillion in additional revenue to the U.S. economy. With regard to public safety, the Deloitte report finds that a one-minute reduction in response time translates to an 8% reduction in mortality. It also says that self-driving cars could reduce emissions by 40-90%, travel times by 40%, and delays by 20%. Whether the economic impact of 5G technology is $500 billion or $1.8 trillion, it is clear that deployment of 5G will make cities safer, healthier, and contribute significantly to the U.S. economy.
So, Governor Brown’s decision could disadvantage the California economy as more and more states continue to adopt small cell legislation. And it will deprive California’s residents of the various public safety, environmental, health, and other benefits that 5G deployment is expected to bring. Hopefully, for the sake of California residents, Governor Brown reconsiders his veto and this bill soon returns to his desk for a signature.

Monday, October 16, 2017

Effective Wireless Competition: Lower Prices and More Data

Friday, October 13, 2017

California Public Utilities Commission Approves CenturyLink and Level 3 Merger

On October 12, 2017, the California Public Utilities Commission approved the proposed merger between CenturyLink and Level 3 Communications. California was the last remaining state to approve the merger and it now waits for the FCC to make a decision. In a September 2017 blog, I urged the FCC to move forward with this merger review as soon as possible and to improve the timeliness of all merger reviews. And in a January 2017 Perspectives from FSF Scholars, Senior Fellow Seth Cooper explains how a potential CenturyLink and Level 3 merger would bring pro-competitive public benefits in both the video and broadband markets.

Thursday, October 12, 2017

Yes, Internet Regulation Negatively Impacts Wireless Broadband Investment

On September 26, 2017, the FCC adopted the Twentieth Wireless Competition Report, which found that the market for mobile wireless broadband is effectively competitive. Commissioner Mignon Clyburn issued a dissenting statement in which she claimed that the Report manipulated data to support the narrative that the Open Internet Order decreased investment. She also said that the Report did not include investment data that she specifically requested. Nevertheless, when considering the data Commissioner Clyburn cites in her dissenting statement, the evidence is clear that the Open Internet Order discouraged wireless providers from investing in broadband networks.
In her dissenting statement, Commissioner Clyburn said:
For one, the discussion of investment in the mobile wireless services industry is fundamentally flawed. By highlighting a decrease in investment between 2015 and 2016, this section was clearly written to support the false narrative that the 2015 Open Internet Order deterred wireless carriers from investing in their networks. Despite my office’s request, this Report does not include data from the 19th, 18th, and 16th Competition Reports, which showed investment from all commercial wireless companies declined from $33.1 billion in 2013 to $30.9 billion in 2015. In case you missed it, those reports predated the 2015 Order.
According to CTIA’s data, wireless investment grew substantially from $20.4 billion in 2009 to $33.1 billion in 2013. Commissioner Clyburn is correct; wireless investment dropped from $33.1 billion in 2013 to $32.1 billion in 2014. But keep in mind, the FCC’s Open Internet proceeding began in early 2014. In May 2014, the FCC adopted a Notice of Proposed Rulemaking inviting comments on bright light rules and the possible imposition of Title II regulation. And in November 2014, President Obama encouraged the FCC to reclassify broadband under Title II of the Communications Act.
Therefore, the writing was on the wall throughout most of 2014 that the FCC would impose some type of more stringent Internet regulation than the regulations then in place. The regulatory uncertainty hovering over broadband Internet service providers during this time discouraged them from investing in network infrastructure.
Also, Commissioner Clyburn undermines her argument when she says “investment from all commercial wireless companies declined from $33.1 billion in 2013 to $30.9 billion in 2015.” The Open Internet Order was adopted in February 2015 but investment data includes all of 2015, meaning wireless providers had almost a full year to decrease their planned investments due to the impending regulatory costs imposed by the Order. When you consider the regulatory uncertainty of 2014, along with the imposition of Title II regulation in early 2015, it is no surprise that wireless providers decreased investment by $2.2 billion from the end of 2013 to the end of 2015. (As you can see in the graph below, CTIA’s data shows a decline of $1.2 billion over this same period.)
As I stated in a May 2017 blog, overall broadband capital investment has declined by $5.6 billion since the adoption of the Open Internet Order. And as we illustrate in this infographic, the steep decline in wireless broadband investment is consistent with the adoption of the Open Internet Order, dropping by $6.7 billion from 2013 to 2016.
The data that Commissioner Clyburn requested to be included in the Twentieth Wireless Competition Report provides no evidence that the imposition of Title II regulation has not harmed broadband investment. The Commission will recognize the negative investment impact of Internet regulation when it considers Chairman Pai’s Restoring Internet Freedom proposal to return to a light-touch regulatory framework.

Tuesday, October 10, 2017

Now, Keep Moving Forward!

Now that the Senate has confirmed Ajit Pai to another term, he again can devote his undivided attention, as the agency’s Chairman, to leading the Commission. There is still much to do to reform communications policy and the institution itself.
It is an unfortunate indication of the temper of the times that someone as well-qualified as Mr. Pai was subject to an effort by pro-regulatory interests to defeat his confirmation simply because of differences in policy perspective that, in the past, would not have led to such opposition. In the face of this campaign – and some overheated rhetoric – I urged here that Mr. Pai be promptly confirmed. There is no need now to rehearse all of what I said there. Suffice it to say the blog’s last sentence captured my view: “Mr. Pai surely is the right person to lead the FCC at this time.”
So now there is an opportunity to keep moving forward. But, first, a “correction.” Right up there in my first sentence, I see that, in a slip of the keys, I said Chairman Pai “again” can turn his undivided attention to his job. That might imply – wrongly! – that Mr. Pai has spent time thumb-twiddling while awaiting his confirmation. Not so.
Since becoming Chairman last January, Mr. Pai (almost always with the support of his Commission colleague, Michael O’Rielly) already has accomplished much that is notable. For example, regarding procedure and institutional reform, Chairman Pai began – and has now made permanent – the practice of releasing to the public draft proposals and orders three weeks in advance of agency open meetings. This gives the public an opportunity to see the draft of the proposed Commission item on which the commissioners will be voting so that interested persons have the opportunity to provide reactions to the draft before the Commission vote. So far, this move to increase the transparency appears to be working well.
Also notable from an institutional procedural perspective is Chairman Pai’s commitment to ensuring that the commissioners vote on important matters that should not be delegated to the staff for handling. A good example is the restoral to the commissioners of the authority – and the responsibility – to vote on the various congressionally-mandated competition reports, such as the recently adopted Wireless Competition Report.
With regard to matters of substantive policy, the accomplishments thus far likewise have been noteworthy. For instance, early on in his tenure, Chairman Pai terminated the Commission’s innovation-stifling investigations into various popular free data wireless plans that had been initiated by the Wheeler Commission. With Commissioner O’Rielly, he stayed parts of the Wheeler Commission’s overreaching privacy order from taking effect.
And, of course, most consequentially, again with the support of Commissioner O’Rielly, Chairman Pai initiated the Restoring Internet Freedom proceeding to consider reversing all or parts of the public utility-like regulatory regime imposed on Internet service providers by the Wheeler Commission’s 2015 Title II order. The Commission’s Notice of Proposed Rulemaking (NPRM) seeks comment on important questions relating to whether the agency possesses the legal authority to adopt the 2015 regulations and, even assuming such authority exists, whether, as a matter of policy, it is reasonable for the Commission to do so. [For the views of Free State Foundation scholars on the issues raised in NPRM, see our initial comments and reply comments.]
Going forward, acting in the Restoring Internet Freedom proceeding is the single most consequential item on the Commission’s agenda. For the reasons discussed in the Free State Foundation’s filed comments and reply comments, it is important for the Commission to eliminate, or at least curtail to a substantial extent, the regulations currently applicable to Internet service providers.
But consistent with, and in furtherance of, the commendable efforts already begun by Chairman Pai to rollback unnecessary and costly regulations that don’t make sense in today’s competitive communications landscape, there is more that should be done. In remarks at the Free State Foundation’s Tenth Anniversary Gala Luncheon on December 7, 2016, then-Commissioner Pai pointed out that the “regulatory underbrush at the FCC is thick” and declared: “We need to fire up the weed whacker and remove these rules that are holding back investment, innovation, and job creation.”
To that end, I want to urge, once again, that Chairman Pai and his fellow commissioners, consider a series of reform proposals I published earlier this year, all but one of which were co-authored by my Free State Foundation colleague, Seth Cooper. [Links to each of these proposals may be found below at the end of this piece.]
I want to call special attention to the FSF proposals for improving the Commission’s periodic regulatory reviews and forbearance reviews mandated by Sections 10 and 11 of the Communications Act and the proposal for improving the Commission’s periodic review of regulations that have a significant economic impact on small businesses. In each instance, in recognition of the evidence that the communications marketplace is largely effectively competitive, the Commission should establish deregulatory rebuttable evidentiary presumptions. As explained in detail in each of the pertinent proposals, these evidentiary presumptions would not alter the substantive standards or findings required by the regulatory review, forbearance, or small business statutory provisions. Rather, adoption of an evidentiary presumption consistent with the deregulatory congressional intent of these provisions would facilitate eliminating regulations that are no longer necessary due to changed competitive circumstances.
To the extent that there was ever any doubt concerning the Commission’s authority to adopt rebuttable presumptions such as those that I have recommended, such doubt should have been expelled by the D.C. Circuit’s July 2017 decision in National Association of Telecommunications Officers and Advisors v. FCC. There, in a unanimous decision, the court affirmed the Commission’s adoption of a rebuttable evidentiary presumption to the effect that if a cable franchise area is served by at least two competing providers, each of which offers services to at least 50% of the franchise area’s households, and the number of households subscribing to the services of providers other than the largest exceeds 15% of the households, then the FCC presumes the franchise area is effectively competitive. In adopting this deregulatory presumption, which reversed a presumption running in the other direction, the Commission cited the changed competitive landscape. To his credit, then-Chairman Wheeler joined with Commissioners Pai and O’Rielly to forge the Commission majority in favor of this sensible deregulatory action.
In affirming the Commission’s decision, the D.C. Circuit observed in NATOA that “the Commission has grounded its presumption in strong evidence of market conditions and facilitated rebuttal where the facts may warrant it.” Furthermore, the court declared that merely because a statute requires the Commission to make “findings,” this does not indicate that the use of presumptions is precluded, especially where, as the court put it, “Congress has not spoken directly to the question whether the Commission may use a rebuttable presumption in lieu of case-by-case findings of fact….”
Now that Chairman Pai has been confirmed to another full term, and as he prepares to lead the Commission in a direction that removes unnecessary rules that, as he has said, are “holding back investment, innovation, and job creation,” he and his fellow commissioners should consider employing deregulatory rebuttable presumptions as a means of minimizing regulatory roadblocks.
I’m confident that this course will enhance overall consumer welfare, while spurring the nation’s economy.

Randolph J. May and Seth L. Cooper, A Proposal for Improving the FCC's Regulatory Reviews,” Perspectives from FSF Scholars, Vol. 12, No. 1 (January 3, 2017).
Randolph J. May, A Proposal for Trialing FCC Process Reforms,” FSF Blog, January 9, 2017.
Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC's Forbearance Process,” Perspectives from FSF Scholars, Vol. 12, No.4 (January 17, 2017).
Randolph J. May and Seth L. Cooper, A Proposal for Improving the FCC's Video Competition Policy,” Perspectives from FSF Scholars, Vol. 12, No. 5 (February 8, 2017).
Randolph J. May and Seth L. Cooper, “A Proposal for Improving the FCC’s Regulations Impacting Small Businesses”, Perspectives from FSF Scholars, Vol. 12, No. 6 (February 13, 2017).
Randolph J. May, “A Proposal for Spurring New Technologies and Communications Services,” Perspectives from FSF Scholars, Vol. 12, No. 7 (February 21, 2017). 

Monday, October 09, 2017

Ericsson ConsumerLab Report Projects Increase in Mobile Video

Today, Ericsson released its 2017 edition of the ConsumerLab TV and Media Report, showing significant growth in the proliferation of mobile video. Here are some of the key findings from the report:
  • By 2020, 50% of all TV and video viewing will take place on a mobile screen (tablets, smartphones and laptops), an increase of 85% since 2010.
  • In 2017, nearly 60% of viewers prefer on-demand viewing over scheduled linear TV viewing, an increase of around 50% since 2010. By 2020, linear and video on demand viewing will be almost equal.
  • The average number of used on-demand services has increased from 1.6 in 2012 to 3.8 services in 2017 per person.
  • By 2020, one in three consumers will be Virtual Reality users.
The significant increase in consumer demand for mobile video is the main reason that Cisco projected mobile data to increase fivefold from 2016 to 2021.  This explosion in demand combined with effective wireless competition produces enormous enhancements in consumer welfare.

Friday, October 06, 2017

TAG Initiative Reduced Advertising Revenue from Piracy

The Trustworthy Accountability Group (TAG), an advertising industry initiative with the goal of diminishing the number of advertisements that appear on websites which facilitate access to illegal content or counterfeit goods, released a new study called "Measuring Digital Advertising Revenue to Infringing Sites." 
Here are some of the key findings from the study:
  • Digital ad revenue linked to infringing content was estimated at $111 million last year, of which 83% came from non-premium advertisers.
  • If the industry had not taken aggressive steps to reduce piracy, those pirate site operators would have potentially earned an additional $102-$177 million in advertising revenue, depending on the breakdown of premium and non-premium advertisers.
  • Ongoing industry efforts against piracy have therefore reduced the advertising revenue of pirate sites by 48% to 61%.
It is necessary to address, and diminish, piracy and content theft through voluntary initiatives like TAG to help ensure that content providers, artists, innovators, and marketers can earn a return on their creative works – thereby incentivizing more innovation, investment, and economic growth.

Effective Wireless Competition

Don't Withdraw from NAFTA, Strengthen It

With NAFTA negotiations underway, Tom Donohue, President and CEO of the U.S. Chamber of Commerce, recently wrote an article in the Wall Street Journal explaining why an exit from NAFTA would be harmful to U.S. consumers and entrepreneurs. I agree with him that, instead of withdrawing from NAFTA, President Trump should focus on improving areas that need fixing, such as strengthening NAFTA’s Intellectual Property (IP) Chapter in order to better protect the rights of artists, creators, and inventors throughout North America.
In his article, Mr. Donohue explains why withdrawing from NAFTA would be detrimental to the entire U.S. economy:
Fourteen million American jobs depend on trade with Canada and Mexico, which are by far the U.S.’s largest export markets. Our North American neighbors buy more than $600 billion in U.S.-manufactured goods each year, more than the next 10 largest markets combined.

Thanks to NAFTA, virtually all North American trade is tariff-free. After withdrawing from the deal, tariffs on all products would snap back to an average of 3.5% for the U.S., 4.2% for Canada, and 7.5% for Mexico—a terrible deal for all three countries.
The increased tariffs would hit American consumers and exporters in the pocketbook, but the losses would accumulate well before that. Supply chains would shift away from the U.S., as Canada and Mexico looked to their other free-trade partners, in Europe and Asia, for manufactured goods and food. Hundreds of thousands of American jobs would be lost, and that’s a conservative estimate. 
In a July 2017 blog, “Strengthen NAFTA’s IP Chapter,” I contended that withdrawing from NAFTA would eliminate strong protections of IP rights that have been established among the U.S., Canada, and Mexico. While there is room to strengthen the existing protections, removing them entirely surely would be harmful to securing protection of copyrights and patents here in the U.S. and throughout North America.
In the blog, I discussed some of the areas where NAFTA’s IP Chapter can be improved. For example:
Some parts of Canadian and Mexican IP laws, along with enforcement practices, do not protect U.S. interests. For example, the position of both Canada and Mexico with regard to the transshipment of counterfeit and pirated goods into the United States is too relaxed. This places a high burden on U.S. border officials to police illicit trade. Pirated and counterfeit digital goods have become increasingly available since NAFTA was implemented in 1994, just before the digital economy started to grow. The distribution of pirated and counterfeit goods was listed as a key area of weakness for both Canada and Mexico in the Global IP Center’s (GIPC) 2017 International IP Index.
Stronger IP rights protections will incentivize more innovation and investment in all three NAFTA member countries. This will benefit artists and inventors in the member countries by helping to ensure that they receive the just rewards for their labors, and it will also benefit the entrepreneurs and consumers that undergird thriving market-based economies. With $1.3 trillion in annual economy activity and 14 million jobs on the line in the United States, President Trump should not be focusing on withdrawing from NAFTA but rather on updating the treaty, including in a way that strengthens the all-important Intellectual Property Chapter.